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Moody's: Pharma firms' ratings could be under pressure

Ratings agency Moody's has announced that certain European pharmaceuticals companies' ratings could be pressured by resumed share buy-backs.

Four of the largest pharma groups, namely AstraZeneca, GlaxoSmithSkline (GSK), Novartis and Sanofi, could all be at risk after they re-started share buy-back schemes following a period of consolidation and a series of mergers and acquisitions.

Moody's said: "AstraZeneca intends to make $4.5bn worth of share buybacks this year, an amount that exceeds our current expectation for its post-dividend free cash flow generation in 2012 - approximately 2.5bn.

"Negative pressure on AstraZeneca's rating or outlook could build if sizeable buybacks combined with earnings erosion lead its financial profile to weaken.

Meanwhile, the agency said that share buy-backs combined with other large cash outflows could cause GSK's financial profile to weaken, resulting in rating pressure. "However, GSK has provided a monetary range for its repurchases, enabling it to retain a degree of flexibility if conditions change."

The agency is of the opinion that the firms' European counterparts are likely to make fewer share buy-backs.

"In general, most rated industry players are keen to keep a Prime-1 short-term rating so that they can access the debt markets easily and cover any unexpected payments. Because a Prime-1 rating hinges on an issuer's ability to maintain a long-term rating of at least A2 or higher, we would not expect companies to undertake substantial share repurchases that could potentially jeopardise this."